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Invest Today or… Tomorrow? A Real Option Approach to Strategic Development in the French DSL Market

Author

Listed:
  • Laurent BENZONI

    (ERMES, Université Panthéon-Assas)

  • Nicolas GRESSER

    (TERA Consultants, Paris)

  • Cuong Hung VUONG

    (ERMES, Université Panthéon-Assas)

Abstract

This paper presents a descriptive case study of the new entrants' strategies on the French DSL market, applying the theoretical framework of real options. It is shown that two main strategies have been built around different analyses of the fixed incumbent operator's wholesale offer. The first is based purely on a classical valuation approach (net present value). The second accounts for an "invest tomorrow" real option included in the incumbent's wholesale offer. The trade-off carried out by new entrants with the second strategy is then analysed and illustrated with a real option valuation based on the binomial tree method. Consequently, wholesale offer prices could include a mark-up to reflect the loss of a real option value by the incumbent in favour of new entrants.

Suggested Citation

  • Laurent BENZONI & Nicolas GRESSER & Cuong Hung VUONG, 2008. "Invest Today or… Tomorrow? A Real Option Approach to Strategic Development in the French DSL Market," Communications & Strategies, IDATE, Com&Strat dept., vol. 1(70), pages 89-100, 2nd quart.
    • Handle: RePEc:idt:journl:cs7005
    as

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    References listed on IDEAS

    as
    1. Luiz E. Brandão & James S. Dyer & Warren J. Hahn, 2005. "Using Binomial Decision Trees to Solve Real-Option Valuation Problems," Decision Analysis, INFORMS, vol. 2(2), pages 69-88, June.
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    Keywords

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    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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